Info!! Using Pure Cost Momentum To Rails Marketplace Cycles

I'm non a big fan of price similar "overbought" in addition to "oversold".  Too often, those price embed a bias--that the stretched marketplace is probable to snap back.  Similarly, i mortal looks at a nautical chart in addition to notices "consolidation"; to a greater extent than or less other perceived "topping".  There is a lot of room for subjectivity inwards how nosotros label what nosotros see.  That's a practiced argue to hold off at many things alongside a fresh ready of eyes.  We're less probable to autumn victim to confirmation biases if nosotros persuasion the globe through multiple lenses in addition to invite data that doesn't neatly tally into our views of the moment.

Above is a nautical chart of the ES futures.  Each indicate on the nautical chart represents 50,000 contracts traded.  On busy days, nosotros impress to a greater extent than points on the chart; boring days impress fewer.  Similarly, the busy times of twenty-four hours impress to a greater extent than points than the slow, midday hours.  This normalizes, to to a greater extent than or less degree, volatility inside in addition to across days.  I farther require keep volatility out of the motion painting past times only recording whether the average cost of each book bar is upward or downward relative to the prior bar.  The nautical chart is an 80-bar moving average of this up/down count.  It tin last viewed equally a relatively pure stair out of cost momentum.

When the 80-period average has been inwards the transcend one-half of its distribution, the adjacent twoscore bars require keep averaged a gain of +.15%.  When the average has been inwards the bottom one-half of its distribution, the adjacent twoscore bars require keep averaged a loss of -.01%.  If you lot hold off at the nautical chart closely, you'll run into the argue for this momentum effect:  early on inwards a marketplace cycle, nosotros run into a surge inwards upside momentum, which stays positive but wanes equally the cycle matures.  Eventually nosotros give-up the ghost negative momentum, leading to a crescendo of downside cost modify soon earlier nosotros hitting a cost low.

Seeing where we're at inwards this procedure gives a practiced read for where nosotros stand upward inwards the acquaint marketplace cycle.  Much of the upside drive inwards the marketplace tin last attributed to momentum next rigid positive readings in addition to value/reversal next rigid negative readings.  Tracking these helps us suit to the phases of a marketplace cycle.

Further Reading:  Finding Opportunity inwards Market Cycles
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